ESG Case Study – Northrop Grumman

By Kathryn Maraist & Andy Poreda Aerospace & Defense is a critical component of the economy and global safety, yet many ESG investing strategies eliminate the industry because of its ties to controversial weapons. At Sage, we take a pragmatic approach to ESG analysis, and while we do exclude some industries, we prefer to look for companies that are intentionally building sustainable business models. In this case study, we analyze the ESG policies of Northrop Grumman, an ESG leader within the Aerospace & Defense industry. About Northrop Grumman Northrop Grumman (NG) is an aerospace and defense (A&D) company that employs 90,000 people across all 50 states and around the globe. NG’s product base comprises a wide range of capabilities: autonomous systems; cyber; command, control, communica­tions and computers, intelligence, surveillance and reconnaissance (C4ISR); space; strike; and logistics and modernization. The U.S. government (specifically, the Department of Defense and intelligence community) accounted for 83% of NG’s $34 billion in sales in 2019, making it the fourth-largest defense contractor in the country. The company also increasingly conducts business with foreign countries through the U.S. government’s Foreign Military Sales (FMS) Program, and a small share of its profits is derived from local and state governments as well as commercial sales. Due to the sometimes-controversial nature of military operations and their various negative externalities, ESG risk is prevalent in almost every aspect of this industry; therefore, it is vital that companies perform due diligence and effective risk management across all activities.